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Tuesday, January 20, 2015

R147bn lost through money illegally leaving SA

National
R147bn lost through money illegally leaving SOUTH AFRICA !

Sarah Evans

South Africa is losing roughly R147-billion a year to the illegal movement of money out of the country.
The money moved out of the country frequently funds corruption or organised crime, according to the GFI. (Oupa Nkosi, M&G)

South Africa is losing roughly R147-billion per year to the illegal movement of money out of the country.

This is according to a report by international monitoring organisation, Global Financial Integrity (GFI), which released a new report on illegal capital flight this week. The report tracks illegal outflows from 2003 to 2012.

To put this figure in perspective, Higher Education Minister Blade Nzimande told Parliament in 2012 that R147-billion could accommodate all university students at all universities in the country.

This form of illegal capital flight, or, in economics terms, illicit financial flows, involves the movement of money out of the country in which it is generated, robbing countries of the economic benefits of money generated.

Companies or organised crime groups do this to purposefully hide profits generated or money illegally earned from their record books.

The money moved out of the country frequently funds corruption or organised crime, according to the GFI.

“Illicit financial flows are the most damaging economic problem plaguing the world’s developing and emerging economies,” GFI president Raymond Baker said this week. Outflows in 2012 were the highest on record.

According to the Thabo Mbeki Foundation, this practice in Africa dates back to the 1960s. Many multinational corporations, insecure about the political future of their host countries after decolonisation, sought mechanisms to move their profits offshore.

One way in which money is moved is euphemistically called “tax planning” or the movement of profits to tax havens around the world via the establishment of fake operations in offshore tax secrecy jurisdictions, to hide taxes owed to host countries and increase profits.

The practice has become so common that at least one auditing firm released a tip sheet to its clients, mostly multinational corporations, to advise them on how to avoid paying taxes without alerting tax authorities.

Developing countries lost $991.2-billion in illicit outflows in 2012. And in total, from 2003 to 2012, these countries lost $6.6-trillion.

“This is a trillion dollars that could have contributed to inclusive economic growth, legitimate private sector job creation and sound public budgets,” according to report co-author Joseph Spanjers.

Sub-Saharan Africa had the biggest amount of illegal financial outflows as a share of Gross Domestic Product (GDP) at 5.5%.

Over the past 10 years, illicit outflows have grown 13.2% per year in sub-Saharan Africa.

Deliberate misreporting
Another form of illicit financial outflows involves trade misinvoicing or the deliberate misreporting of the value of commercial transactions on invoices submitted to customs to illegally move money across borders. It is the biggest contributor to illicit flows from developing countries, according to the GFI. This kind of capital flight was responsible for 77.8% of all illegal flows in the developing world over the period studies by the GFI.

But the actual amount of capital that the developing world – and South Africa – loses each year thanks to illegal money flows could be much higher. The GFI says its estimates are “highly conservative” as the institute does not add into its calculations the movements of bulk cash, services mispricing or other types of money laundering.

“This means that many forms of abusive tax avoidance by multinational companies, as well as the proceeds of drug trafficking, human smuggling and other criminal activities, which are often settled in cash, are not included in these estimates,” according to Dr David Kar, a senior economist at the GFI and the main author of the study.

Kar said the rate at which countries are losing money thanks to this kind of capital flight was “extremely troubling”.

“These outflows are growing the fastest and taking the largest toll as a share of GDP on some of the poorest regions in the world. These findings underscore the urgency with which policymakers should address illicit financial flows,” Kar said.

To combat this, the GFI says regulators and law enforcement authorities must ensure that all of the anti-money laundering regulations are strongly enforced.

“All countries should actively participate in the worldwide movement towards the automatic exchange of tax information. Trade transactions involving tax haven jurisdictions should be treated with the highest level of scrutiny by customs, tax, and law enforcement officials,” the GFI said.

Reuters
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The South African Revenue Service (Sars) has applied to the North Gauteng High Court to liquidate Sharemax Investments, the property syndication promotion and marketing firm that collapsed in 2010 and was deemed a Ponzi scheme by the ombud for financial advisory and intermediary services (Fais).

Sars is also applying for Sharemax’s business rescue proceedings, which were launched in November 2011, to be set aside and terminated because of non-compliance with the Companies Act. The application has been prompted by the alleged inability of Sharemax to pay Sars R15.7 million in outstanding taxes.

The application, among other things, reveals that a business rescue plan has to date not yet been published for Sharemax Investments, despite a business rescue practitioner being appointed to Sharemax on December 7, 2011.

Rescue

The Companies Act requires a business rescue plan to be published by the company within 25 business days of the business rescue practitioner being appointed, or any longer time allowed by the court or the holders of a majority of the creditors’ voting interest.

About 33 000 investors invested about R4.5 billion in Sharemax’s various schemes.

Sharemax’s collapse in 2010 was precipitated when a finding that its funding model contravened the Banks Act became public knowledge after an investigation by the registrar of banks at the Reserve Bank.

This led to new investments drying up and it being unable to make monthly payments to investors.

The registrar of banks placed Sharemax under statutory management in September 2010 and appointed two statutory managers with a mandate to manage the repayment of investors’ funds or seek other legal alternatives.

In January 2012 the North Gauteng High Court sanctioned a scheme of arrangement and offer of compromise to shareholders.

The registrar of banks laid criminal charges against Sharemax for alleged contraventions of the Banks Act in March 2012.

In its application, Sars cites Sharemax and six other respondents, including Liebenberg van der Merwe, Sharemax’s appointed business rescue practitioner; the Companies and Intellectual Property Commission; former Sharemax managing director and creditor Willie Botha; former Sharemax director and creditor Andre Brand; former Sharemax director Dominique Haese, who is now managing director of the Nova Property Group and Frontier Asset Management, which took over and manages Sharemax’s property portfolio in terms of a high court-approved restructuring of Sharemax; and Nova Property Group chairman Connie Myburgh.

Elle-Sarah Rossato, a Sars official, said in an affidavit filed in support of the application that Van der Merwe confirmed in September last year that Sharemax was unable to pay the debt owing to Sars because of an unforeseen development.

This was the determination delivered by the Fais ombud between Gerbrecht Siegrist and various Sharemax group companies, including Sharemax Investments, in terms of which all of these companies were held jointly and severally liable for the payment of R580 000 to Siegrist.

Complaints

Rossato said Myburgh had indicated that about 500 further complaints had been lodged with the Fais ombud as a result of this ruling, and until the appeal against this had been determined, the debts owed to Sars could not be paid.

She said Van Merwe claimed in October last year that a business rescue plan for Sharemax could not be finalised until the Sars claim was finally quantified and finality was achieved on the complaints adjudicated by the Fais ombud.

Rossato said the quantification of Sars’s claim was “disingenuous and incorrect” because the correctness of the tax debt was confirmed at a meeting in September last year.

Van der Merwe’s assertion that the business rescue plan could not be finalised until finality was achieved regarding the Siegrist determination was “equally disingenuous”.

Rossato said Van der Merwe was appointed Sharemax’s business rescue practitioner on December 7, 2011, and the Siegrist determination was only handed down on January 29 last year.

To date, no business rescue plan for Sharemax Investments had been published, she said.

Rossato said Sharemax and Botha, Brand, Haese and Myburgh were aware that Sharemax did not have any assets to pay its creditors but “they disingenuously abuse the Siegrist determination”.

Rossato claimed Sharemax’s business rescue proceedings terminated after the expiry of the 25-day period from Van der Merwe’s appointment when he failed to publish a business rescue plan. She said Van der Merwe had claimed in October last year that consent had been obtained for an extension from Botha and Brand.

In a response to Sars’s application filed this week, Sharemax Investments said the failure by Sars to cite and join Siegrist as a respondent made its application defective because Siegrist’s rights as a creditor would be prejudiced if its application was successful.

SHAREMAX Investments, the property syndication promotion and marketing firm that collapsed in 2010, claims it has reached agreement with the SA Revenue Services on the “essential terms” of a settlement of its alleged tax liability.

However, a written settlement agreement had not yet been concluded with Sars, Sharemax said in a statement issued on its behalf by attorneys Faber Goerts Ellis Austin last week.

Adrian Lackay, a Sars spokesman, said it would be premature to comment at this stage on Sharemax’s statement, adding the liquidation application was still to be heard.

“At issue is a consolidated amount for outstanding taxes of around R17 million. Unless payment of the taxes due is made or the matter resolved between the parties, the application will proceed,” he said.

Sharemax claimed in the statement the negotiations were at an advanced sensitive stage and the terms of the settlement agreement reached with Sars were “confidential and cannot be disclosed”.

It claimed that once a final written settlement agreement had been concluded with Sars and implemented in accordance with “the terms that have already been agreed”, the high court application brought against Sharemax by Sars would be withdrawn by Sars “and that will be the end of the matter”.

Sharemax stressed it had sufficient means to pay any tax liability it may have and believed the high court application brought by Sars was “ill conceived and nothing more than an attempt to coerce Sharemax to yield to Sars’ premature demands”.

However, Sars’ court action also included an application for Sharemax’s business rescue proceedings, which were launched in November 2011, to be set aside and terminated because of non-compliance with the Companies Act.

Sars’ application revealed that a business rescue plan had to date not yet been published for Sharemax Investments, despite a business rescue practitioner being appointed to Sharemax on December 7, 2011.

The Companies Act requires a business rescue plan to be published by the company within 25 business days of the business rescue practitioner being appointed, or any longer time allowed by the court or the holders of a majority of the creditors’ voting interest.

In its application, Sars cited Sharemax and six other respondents, including Liebenberg van der Merwe, Sharemax’s appointed business rescue practitioner; former Sharemax managing director and creditor Willie Botha; former Sharemax director and creditor Andre Brand; former Sharemax director Dominique Haese, who is now managing director of the Nova Property Group and Frontier Asset Management, which took over and manages Sharemax’s property portfolio; and Nova Property Group chairman Connie Myburgh.

In a determination issued last year, the ombud for financial advisory and intermediary services deemed the Zambezi Retail Park property syndication scheme promoted and marketed by Sharemax a Ponzi scheme.

About 33 000 investors invested about R4.5 billion in Sharemax’s various schemes.

Sharemax’s collapse in 2010 was precipitated by the finding of a registrar of banks investigation, that Sharemax’s funding model contravened the Banks Act, becoming public knowledge. This led to new investments drying up and it being unable to make monthly payments to investors.

The registrar of banks placed Sharemax under statutory management in September 2010 and appointed statutory managers to manage the repayment of investor’ funds or seek other legal alternatives.

In January 2012 the North Gauteng High Court sanctioned a scheme of arrangement and offer of compromise to shareholders. The registrar of banks laid criminal charges against Sharemax for alleged contraventions of the Banks Act in March 2012.

The planned application by the new board of the Sharemax group of companies to seek permission from the High Court for an offer of compromise in terms of the Companies Act to creditors in schemes promoted and marketed by the company has hit a potential snag.

Chase International managing director Pierre Hough, a business strategist who conducts specialist forensic investigations, claims the planned offer of compromise is seeking to legalise an illegal act and prejudicial to the rights of “prospective investors”.

Hough said there were no investors or shareholders in either the Zambezi Retail Park or The Villa schemes because a condition that had to be met for the scheme to become effective had not been fulfilled.

This condition was the transfer of the properties into the syndication vehicle mentioned in the prospectus for both these schemes, he said.

Hough stressed both the Zambezi Retail Park and The Villa schemes had failed and, in terms of the government notice on property syndications, the money deposited by prospective investors into the trust account of Sharemax attorneys Weavind & Weavind must be repaid.

“In terms of the government notice, the money deposited can only be dealt with in one way. It must be repaid to the applicants. The issue of share certificates to prospective investors is highly irregular and possibly fraud.

“Prospective investors in Zambezi Retail Park and The Villa must not be duped into believing they are shareholders and debenture holders. They are merely prospective investors,” he said.

An investigation by the Reserve Bank found that Sharemax’s funding model contravened the Banks Act.

“You can’t take an illegal scheme and through a compromise arrangement move people from A to B. You must inform people correctly,” he added.

Dawie Roodt, the chairman of the Efficient Group and a director and spokesman for the new board of the Sharemax group of companies, said he was not in a position to comment on claims that there were no shareholders in Zambezi Retail Park or The Villa. He said he did not understand all the legalities around such claims.

But he said there was a lot of freedom around an offer of compromise provided the court was satisfied the alternative was worse for all concerned.

A statement issued by the Sharemax board last month stated the schemes of arrangement related to an offer of compromise were being structured “with the view to eliminating all and any contraventions of the Banks Act”.

It said this was to make it possible for the directives issued by the Reserve Bank against all Sharemax companies, and the appointment of statutory managers, to be withdrawn once the High Court had sanctioned the schemes of arrangement.

Roodt confirmed the planned offer of compromise would probably involve four Sharemax schemes, Zambezi Retail Park, The Villa and Sharemax’s income and growth plans.

He said the new board had made progress and on behalf of investors had taken over all the claims of former Sharemax chief executive Willie Botha and chairman André Brand and “with a bit of luck” would be able to launch the High Court application soon. - Business Report

The arbitration award made at the end of 2010 concluded that Sharemax owes Capicol R64 million, excluding damages, which was due for payment by no later than 7 March 2011. The Sharemax board conceded, prior to the payment date mentioned, that they are unable to pay said amount. Capicol then made yet another offer to them for consideration by the investors. This offer once again provided for repayment of the full syndicated amount paid out monthly over 10 years to the investors to assist them as these payments represent the sole livelihood of many of these investors.

The newly appointed Sharemax board has inexplicably rejected this offer whilst the 7th March has come and gone with no payment forthcoming in accordance with the arbitration award. This comes after Capicol made an offer to the Sharemax board in September 2010, which was signed by a duly authorized director of said board and it also entailed repayment of the full syndicated amount (invested capital) to the investors; however the board failed to even present this offer to the investors for approval.

Capicol has made all reasonable attempts to ensure that the investors are protected in this dispute; however, due to the Sharemax Board's most recent decision Capicol has no choice but to proceed with an urgent application for cancellation of the subsequent bond as the agreement has now cancelled. This will be done in order to ensure proper protection of the collective interest of Capicol, Zambezi Mall, its' tenants, contractors and employees.

Capicol is disappointed with this result, but will now pursue the necessary legal remedies available to it.

2011-03-23 07:02
A MARVELLOUS exchange of words (or is it a civil war?) is taking place among the financial advisers previously so keen to place our senior citizens' money with the Sharemax property syndications.

On the one hand, there's the group giving unqualified support to the SA Reserve Bank and the new independent board in a Section 311 scheme of arrangement.

On the other, there's Herman Waschefort, who has solutions – or perhaps dreams – that could result in capital losses and possible liabilities for the advisers.

Waschefort is now being branded a heretic in Sharemax circles.

Sharemax founder Willie Botha has also reappeared from the wilderness over the past two weeks. In a letter to his former colleagues – and especially the financial advisers – he's now singing the praises of the Reserve Bank as their saviour.

That's the same bank – and especially deputy registrar of banks Michael Blackbeard – whose status has quickly changed over the past two weeks from skunk to champion.

The reason, in brief, is the so-called directive given by Blackbeard himself to the two statutory managers – Neels Alant and Jaco Spies – he appointed for Sharemax and its syndications.

The directive states: investors' capital must be protected, no liquidations may be granted and investors' deposits must be refunded.

The advisers, probably unknowingly, with the assistance of new chairperson and former Judge Willie Hartzenberg and spokesperson Dawie Roodt, interpret that directive very conveniently as meaning – under the proposed 311 scheme of arrangement – no action may be taken by the manager that may cause capital losses.

In brief, no building – no matter what state it's in – may be disposed of at less than the syndication value.

In his letter, Willem (previously Willie) Botha, big chief of the old Sharemax, simply interprets the first directive as follows: "The Reserve Bank must protect investors' capital."

That might be a bit different from Blackbeard's original intention with his directive.

The gist of the 311 scheme of arrangement seems to be that no capital losses may be suffered and that the advisers will therefore escape any claims by investors.

That's the advisers' interpretation. In his letter to them, Theo van Grijp, one of a trio in control of DA-Assits, an organisation formed to protect the interests of brokers, shares the following good news with his fellow advisers.

At a meeting with Frontier, which now manages Sharemax's day-to-day activities, it was said "the advisers are very serious about the fact they will not be able to support any solution that will result in capital losses for the investors.

"If the Section 311 scheme excludes capital losses for the investor it automatically means no liability for the capital losses for the advisers. This is a very important point."

That's a unique way of interpreting the Reserve Bank's directive.

Blackbeard was very quick to confirm to Finweek last week that directive No 1 – which reads: "The investors' capital must be protected" – is indeed an instruction to the statutory managers to proceed as effectively as possible with investors' assets.

"Keep the losses and costs as low as possible; the instruction is not a fire sale," Blackbeard said.

The interpretation by the old Sharemax advisers, perhaps with some help from the new board of the syndications and the new management company, Frontier, that it means there may not be any capital losses is simply wrong.

The net rental income with the possible exception of Leeupoort, is simply far too low to justify the so-called syndication value of the buildings.

Even in the case of an orderly sale of the buildings, the prices that could be realised would in most cases be far short of 50c in the rand.

Of course, it suits the board of the syndications perfectly to have the advisers suddenly now supporting their 311 scheme of arrangement so eagerly.

Spies says there are currently more than 27 000 individual investments in the syndications. The number of people could be fewer, perhaps around 25 000, as some invested in more than one syndication.

To get the scheme of arrangement to work, the directors need the support of 75% of those 25 000 investors. Not only 75% of those who turn up at the meeting, but 75% of both the number and extent of the investors.

The assistance of the former advisers is therefore highly necessary to obtain that support.

In a special letter to financial advisers who marketed Sharemax Investments' property products, signed by Judge Hartzenberg, the board confirms that on March 1 this year it held a kind of information session with a group of advisers involved with Sharemax products.

Hartzenberg again pointed out how important it was for the advisers to keep up to date with developments and especially to make sure their clients (investors) got to see the original media and other releases.

The reason for that, Hartzenberg said, "was that the investors should not depend on newspapers and the radio, or on journalists' interpretations".

Hartzenberg is quite right, but then the releases and communication with advisers and the investors should preferably be fully complete from the beginning.

To the advisers, this isn't a journalist's interpretation. The first point of the Reserve Bank's directive – "investors' capital must be protected" – certainly doesn't mean the statutory managers may not dispose of an asset at less than the syndication value.

Investors will still suffer losses, even if the 311 scheme works perfectly and as things currently stand, the advisers can still be held liable for the capital losses investors would suffer.

* This article was first published in Finweek.
* To read more Finweek articles, click here.

Sharemax shareholder update
Board of Directors of the Sharemax Promoted Portfolio of Companies
23 February 2011

Statement from the board of directors of the companies in the Sharemax promoted portfolio of companies.

The board of the Sharemax related companies currently operating under the directive of the South African Reserve Bank (the SARB), is pleased to announce that good progress is being made with the proposed Schemes of Arrangement Process. The board remains convinced that this Process provides the best solution and protection to investors and other interested parties.

In previous press releases the board reported that the relationships between the various entities related to the Sharemax promoted portfolio of companies (the companies), are complex and in some instances uncertain. Due to these complexities, the board has decided to propose Schemes of Arrangement in respect of the companies, in order to restructure the financial affairs of the companies to the best benefit of investors and other interested parties (“the Schemes”).

A likely alternative to the proposal of the Schemes may be the liquidation of some or all of the companies, which will inevitably result in significant losses to investors and other interested parties. It is commonly known that a liquidation process has no result, other than causing substantial losses, as a result of the very process of liquidation, and the forced sale scenarios, inevitably associated with a liquidation process.

In addition, investors and other interested parties, including financial advisors having advised investors to invest in the Sharemax promoted portfolio of companies, need to be cognisant of the following. Should the board be unsuccessful in restructuring the affairs of the companies to the extent that any unlawful structures associated with the companies are not rectified by virtue of the proposed Schemes, the business conducted by the companies prior to the directives having been issued by the SARB, may be determined as having formed part of possible illegal scheme. The effect this off may well be that investors who had received income under such a possible illegal scheme, may be required to repay prior income received.

The same applies in respect of financial advisors, having received commissions on their activities in promoting the business of the companies, and having advised their clients to invest in the Sharemax promoted portfolio of companies. In short, financial advisors may well face the possibility of having to repay their commissions and/or face possible litigation, based on advice provided to investors, to invest in such a possible illegal scheme.

Furthermore, should the board not be determined and resolute in its attempts to restructure the affairs of the companies in the aforesaid manner, or be unsuccessful with the proposing of and having the Schemes sanctioned by the High Court, the board will have no alternative but to report to the SARB that it has been unsuccessful. In this event, the SARB may well instruct the board to comply immediately with the directives of the SARB, to the extent that all monies invested in the various projects undertaken by the Sharemax promoted portfolio of companies, will have to be repaid.

Since it will be practically impossible to “repay all monies”, the only alternative will be the liquidation of some or all of the companies, with the consequential serious negative impact on interests of investors and other interested parties. A liquidation process, as opposed to a successful restructuring of the affairs of the companies, so as to eradicate any possible illegality, will undoubtedly bring with it, the extremely negative effects of illegality as referred to above. Moreover, in specific circumstances, the SARB may decide not to oppose a liquidation application by other parties, should the board not be able to present an acceptable plan(s) that are approved by the relevant stakeholders.

The board is aware of the creation of forums and pressure groups which purport to represent certain “interest groups”. The board is willing to engage with credible support groups provided they are properly constituted, representative and with credible objectives.

However, the board is concerned that the creation of some of these groups are designed to jeopardise or undermine the progress made so far. It is also clear to the board that the demands and proposals by some of these groups are impractical and based on a misunderstanding of the issues regarding the legal consequences of and the board’s intentions with the proposed Schemes.

Rumours to the effect that the board refuses to consider reasonable offers on properties are also factually incorrect. The board has received various offers and where these offers were considered reasonable and in the best interests of the companies, the necessary steps were taken to eventually sell these properties as part of the Schemes. Furthermore, the board is legally and duty bound at all times to act in consultation with the SARB appointed statutory managers and to obtain approval from them in regard to all actions of the board relating to its dealings with assets of the companies.

The board is also aware of a process attempting to replace the current board of directors. As part of the Schemes, investors will get the opportunity to ratify the appointment of the current board or to replace the current board with other directors. Attempts to force such a change prematurely could contribute to the derailment of the existing process, will be resisted.

The board is also concerned that attempts to replace the current board is driven by parties having agendas other than those of the board, and in particular, agendas aimed at either liquidating the companies and/or utilising the assets of the companies in a manner and to the effect which will be less beneficial to the interests of the investors and other interested parties. The board’s aims and activities are primarily intended to serve the best interests of investors and other interested parties, with a view to providing the best possible financial benefit to investors and other interested parties, without personal gain to the members of the current board and most certainly with a view to averting the losses undoubtedly associated with any liquidation process.

The board is also aware of actions by certain pressure groups and/or individuals, including attorneys, to solicit proxies from investors. The board urges investors to study the Schemes of Arrangement documentation as soon same are available before signing any proxies. The Schemes of Arrangement documentation will include proxy forms, should investors wish for someone else to represent them at the upcoming meetings of investors, following the implementation of the Schemes.

Any mooted “judicial management process” is concerned, the board advises that it has carefully considered this, and has also taken extensive professional advice in regard thereto. Investors are again cautioned against supporting such a process, as it is the considered opinion of the board that this process is nothing more than a carefully designed action aimed at ultimately procuring the liquidation of certain of, if not all, of the companies. Clearly, the intention is to benefit, not investors, but liquidators and parties affiliated to liquidators whilst ignoring the serious negative effects of a liquidation process, including exorbitant fees and expenses to be paid, to liquidators and parties affiliated to liquidators. The Board will, and by reason of the fact that no judicial management process will achieve any results other than eventual liquidation, oppose any judicial management process.

A brief status report:

· Agreement with Sharemax shareholders

The board has been and is in discussion with relevant parties and agreements have been reached in some instances (see previous press releases). Following the agreements already concluded, the board is pleased to announce that it is on the verge of reaching an agreement with the shareholders of Sharemax Investments. More detail will be provided as soon as these agreements have been concluded.

· Property management

The Frontier board has decided to subcontract some of the property management of seven properties (Athlone; die Meent; Oxford Gate; Liberty; Range View; The Fern; Rivonia) to JHI Properties as from March 1, 2011.

A 105-year-old Pretoria-based law firm connected to the multibillion-rand property syndications marketed by troubled Sharemax Investments could be liquidated.

Weavind & Weavind has been served with a written demand for repayment of R1.55 million to 11 investors in terms of section 145 of the Companies Act, which is a precursor to launching an application for the liquidation of the firm.

The demand relates to funds deposited by the investors into the law firm's trust account for The Villa syndication, a R2.8 billion retail property development in Pretoria's eastern suburbs that was promoted and marketed by Sharemax.

Construction on The Villa and Zambezi Retail Park syndications ground to a halt last month when funds from Sharemax to Capicol dried up. Capicol is the developer of both projects.

Kobus Schabort of Schabort Attorneys, who represents the 11 investors, confirmed yesterday that the letter of demand was served on Weavind & Weavind early last week.

Schabort said his firm had not yet received any response from Weavind & Weavind, but in terms of the Companies Act the law firm had three weeks to respond. He confirmed that his intention was to initiate legal proceedings to liquidate Weavind & Weavind if it failed to repay or put up security for the amount demanded.

Schabort Attorneys said it had to execute the claim against Weavind & Weavind before a claim could be lodged against the fidelity fund of the Law Society of the Northern Provinces. However, a R200 000 claim has already been lodged with both the fidelity fund and Attorneys Insurance Indemnity Fund related to the alleged illegal release of funds deposited into the trust account of Weavind & Weavind for the Zambezi Retail Park syndication.

Over the past 13 years, Sharemax has raised billions of rands, much of it from pensioners, for more than 30 property syndications. But last month the registrar of banks appointed statutory managers to manage the repayment of funds to investors from all its syndications after an investigation revealed that Sharemax's funding model contravened the Banks Act.

A planned high court application last month on behalf of the 11 investors to place Sharemax under judicial management was stymied when the registrar of banks appointed the statutory managers, which stayed all legal proceedings against the company.

Weavind & Weavind was identified in various prospectuses issued by Sharemax as the attorneys involved in the property syndication scheme, and was responsible for administering deposits made into its trust account for the syndications.

Neither the Zambezi nor The Villa property syndication schemes have been transferred to the property syndication vehicle. The withdrawal of funds from the trust account before the transfer of the properties to the syndication vehicle is prohibited in terms of a Trade and Industry Department notice issued in 2006